"You lose sight of what is important if you're focused on nominal prices in equities," said Bass, founder of Dallas-based Hayman Capital Management.

"One of the best performing equity markets in the last decade has been Zimbabwe," he added. "But now your entire equity portfolio only buys you three eggs."

Bass concluded: "You have to really focus on the insidious nature of what inflation is, and how real returns might be negative in both equities and bonds," he said, "you're losing purchasing power."

Bass, who is famous for predicting the sub-prime lending crisis, was interviewed on "Squawk on the Street" at the TIGER 21 conference, an event for high net worth investment managers in Palm Beach, Florida.

He said the Fed's bond-buying program, which is aimed at stimulating stock prices and the U.S. economy, has skewed the relationship between stocks and bonds.

"If the monetary base is going to continue to grow at the rate it's growing and the Fed holds rates where they are today, we've lost the correlation between stocks and bonds," Bass said, "Stocks will continue going higher if we continue printing money."

Bass suggests that investors "own productive assets," such as apartment complexes, oil wells, or global businesses that sell products in different currency areas.

"If you really want to protect yourself, you put long-term fixed rate debt on these businesses," he said.

Jonathan Fickies | Bloomberg | Getty Images

J. Kyle Bass

People continue to scramble for yield," he said, "the U.S. rate curve is still basically flat and low. The Fed is actually doing the best job it can do, but it's also enabling the fiscal profligacy of Congress."

"If there are no negative consequences for (Congress) to continue to spend the way they're spending, they're not going to change that if the bond market isn't calling them out," he said.

"Central bankers are trying to do their best to mitigate a bad situation," said Bass, "but they won't tell you when a situation is untenable or really bad," using Japan as an example, as situation he sees as unsustainable.

With the recent fireworks over embattled company Herbalife between billionaires Carl Icahn and Bill Ackman, Bass said that he would "never bet against Dan Loeb," who has a long position in the company. "I think Ackman has a tough road here," he said.